GBP/JPY forecast: bearish outlook ahead of BoJ decision

July 21, 2023 11:00 AM AEST | By Invezz

GBP/JPY forecast: bearish outlook ahead of BoJ decision — Image source: Invezz

Japan inflation steadies

The pound to yen exchange rate moved sideways after Japan published mild consumer inflation data. According to the statistics agency, the headline CPI jumped from 0.0$ in May to 0.1% in June. This translated to a year-on-year increase of 3.3%, in line with expectations.

Core inflation, which excludes the volatile food and energy products, rose from 3.2% to 3.3%. These numbers are still higher than the Bank of Japan (BoJ) target of 2.0%. They are also higher than the historical average of Japan’s inflation.

Most importantly, Japan’s headline inflation is now higher than in the United States. Data published earlier this month revealed that US prices rose by 3.0% YoY. Therefore, analysts believe that the Bank of Japan will pivot in next week’s meeting.

It will do that by leaving rates unchanged and then tweaking the language on its yield curve control program. The BoJ will meet on July 28th.

The GBP/JPY exchange rate also reacted to this week’s UK inflation data. As I wrote here, UK’s inflation dropped to 7.9% in June as grocery prices retreated. Still, the Bank of England (BoE) has a lot of work to do in the coming months since the UK’s inflation is higher than the EU average.

The next important forex news to watch will be the upcoming UK retail sales numbers. Economists polled by Reuters believe that the headline retail sales dropped by 1.5% in June after falling by 2.1% in May. Core sales are expected to come in at 1.6%.

GBP/JPY forecast

GBP/JPY chart by TradingView

The GBP to JPY exchange rate has been in a downward trend in the past few days. In this period, the pair has moved below the 25-period and 50-period moving averages. It is also nearing the key support level at 179.45, the lowest point on July 13th.

At the same time, the Relative Strength Index (RSI) has moved to the neutral point of 50. Therefore, the outlook is bearish as bets of a more hawkish BoJ rise. More downside will be confirmed if the price moves below 179.45.

The post GBP/JPY forecast: bearish outlook ahead of BoJ decision appeared first on Invezz.

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